Audit Assertions are a representation by management that is embodied in the financial statements. These representations may be explicit or not. Assertions are used by the auditors to assess misstatements and to obtain evidence.
Audit Assertions are about:
- Items appearing in the profit or loss statement,
- Items appearing in the balance sheet, and
- Presentation and Disclosures.

Sacred Accounting will discuss each of the above categories of assertion in detail.
Profit and Loss Assertions
Profit or loss statement shows profit or loss for the period. There are five profit or loss assertions viz occurrence, completeness, accuracy, classification, and cut-off. You are reading this article because you want to know what audit assertions you need to consider whilst conducting an audit of profit or loss statement. This is why sacred accounting have explained each of these assertions in detail (A little bit though!).
Occurrence
The assertion that all the transactions and events recorded in the financial statements, have occurred and are related to the entity is called occurrence.
This assertion is tested for an overstatement. In simple words, if management has recorded a transaction related to profit or loss statement, you need to check its occurrence which will ensure two major things:
- That transaction recorded by management actually occurred, and
- That transaction actually relates to the entity (it means management is not showing someone else’s transaction in their profit or loss statement.

Example of Occurrence Assertion
This is pretty much simpler, as I mentioned, you just need to confirm two things:
- These sales of worth $5,000 actually happened
- These sales worth $5,000 actually relates to the entity.
But how will you do this? well, you need to select a sample of entries from the sales ledger of the entity. After this, you need to match these entries with supporting documents like sales invoices, goods dispatch notes, and customer orders, etc.
Completeness
The assertion that all the transactions that should have been recorded are recorded is called completeness.
This assertion is tested for any understatement. To put it in simple words, if accounting standards require that a transaction should be recorded, it should be recorded and a profit or loss statement will be considered as complete if all such transactions are recorded.
Example of Completeness Assertion
Consider the same example of sales worth $5,000 (as mentioned above), how will you test the completeness assertion?
Come on, you can do it, you just need to select a sample of customer orders and match it with sales invoices and goods dispatch notes. You should also check its posting into the general ledger.
Did you notice the difference?
- We traced entries to underlying supporting documents in case of testing occurrence assertion whilst,
- We traced customer orders to invoices and then its posting into the general ledger.
Why is this difference in relevant tests important?
This is because:
- We need to trace entries in the general ledger to supporting documents to ensure that these transactions actually happened, and
- we traced customer orders to its posting into the general ledger to ensure that transactions are recorded completely.

Accuracy
Assertions that all the transactions are events are recorded with the appropriate amount. A transaction is considered accurate if:
- There is no error while preparing the supporting document, and
- There is no error while posting this transaction.
Example of Accuracy Assertion
Considering the above example (sales of $5,000), how will you test the accuracy?
This is pretty much simple as we need to perform the following steps:
- Select a sample of entries from Sales Ledger.
- Recalculate the amount on sales invoices, and
- check whether control accounts reconciliations are in place.

Classification
The assertion that transactions and events have been recorded in their own proper accounts. It means there is no misclassification of any transaction and event. If a transaction relates to purchasing activities, it must be included in the purchase ledger, similarly, all entries related to sales should be recorded in sales ledger (not anywhere else).
Example of Classification Assertion
Considering our previous example of $5,000 sales, we will test classification by selecting a sample of sales invoices and will trace its posting to the sales ledger. As we perform audit procedures on other line items of profit and loss statements as well, we will confirm the posting of every transaction in the correct head.

Cutoff
The assertion that all the transactions and events have been recorded in the correct accounting period. It means transactions appearing in the current year profit or loss statement actually relate to the current accounting period.

How to Test Cutoff Assertion?
Select the last five transaction of the closing period and first five transactions of the coming period, then ensure they are recorded in the correct general ledgers. Make sure the last five sales are really the last five sales recorded in the sales ledger. Similarly, make sure that the first five transactions are the first transactions appearing in the sales ledger of the next period.
Profit and loss assertions example
What is written in the profit and loss statement?
Suppose NHIRKM Engineers has made sales worth $40,000 in the period ending 31 Dec 2020.
What does Management want to tell us?
- These sales (worth $40,000) actually occurred.
- All the sales are recorded in the p & l, so it’s complete.
- All these sales are valued at an accurate amount.
- Nhirkm Engineers has classified all the transactions related to sales only & only in the sales category.
- All the sales of $40,000 pertain to the current period i.e. 2020.

How will we Test profit and loss assertions in the above example? The following 2 images describe it a lot!


Balance Sheet Assertions
Balance sheet or statement of financial position has 4 assertions. Let me explain all the balance sheet assertions through an example:

Existence Assertion
Existence is the assertion that all the assets, liabilities and equity recorded in the statement of financial position actually exist.
- This assertion means that there has been no overstatement of assets, liabilities and equity items.
- This assertion is very closely related to occurrence assertion for transactions.
How to Test the Existence Assertion?
Select a sample of assets from Fixed Assets Register (FAR) and check whether these exist physically.
Completeness Assertion
This means that all assets, liabilities and equity items that should have been recorded are actually recorded in the statement of financial position.
How to Test Completeness Assertion?
During physical verification of fixed assets, pick some assets on a random basis and trace whether they are recorded in the balance sheet.
Valuation and Allocation
Assertion It means that all assets, liabilities, and equity are recorded at the correct amount, and any adjustments relating to the valuation of assets, liabilities, and equity have been recorded.
How to Test Valuation and allocation Assertion?
Select a sample of fixed assets from Fixed Assets Register and obtain vouchers to perform vouching of their purchase costs. Similarly, recalculate depreciation expense and loss/gain on disposal (if any). Obtain the breakup of any additions made to fixed assets during the period. Then perform vouching on a sample basis to ensure the accuracy of the amount.
Rights and Obligations Assertion
This audit assertion means that all the assets, liabilities and equity presented by the entity in the statement of financial position actually belongs to the entity. To simplify this, we can say that:
- All the assets appearing in the balance sheet belongs to the entity.
- All the liabilities or obligations recorded by the entity, actually pertain to the entity.
How to Test Rights and Obligations Assertion?
Check the ownership documents of fixed assets on a sample basis and ensure they belong to NHIRKM Engineers.
Balance Sheet Assertions Example
What is written in the balance sheet?
Suppose NHIRKM Engineers has fixed assets of $50,000 as at 31 Dec 2020.
What Management wants to tell us?
- These fixed assets actually exist.
- All the fixed assets are recorded in the b/s, so it’s complete.
- All these fixed assets are valued and allocated correctly.
- Nhirkm Engineers has all the rights of these fixed assets.

We will test all these 4 assertions of balance sheet item i.e. fixed assets below with all the relevant assertions defined.


Assertions about Presentation & Disclosure
There are four Audit Assertions about Presentation & Disclosure.
Occurrence and rights and obligations
It means that every event, transaction and any other matter disclosed by the management actually exist and pertain to the entity.
Completeness Assertion
This Assertion means that all necessary disclosures have been made by the management in the financial statements.
Accuracy and Valuation
It means all the disclosures have been made at the appropriate or correct amounts.
Classification and understandability
By classification, we mean that all the transactions have been categorized correctly. Similarly, understandability means that all the disclosures are clearly expressed.
FAQs
Audit Assertions are claims made by the management in their financial statements.These claims may be implicit (not directly stated but implied) or explicit (directly stated). You know, it is the responsibility of management to provide financial statements to external auditors. They present certain information in these financial statements. This information carries both explicit and implicit meanings. This is what we call audit assertions. Management wants to tell the auditors that their revenues, as well as expenses, occurred actually and are complete, accurate, properly classified and recorded in the correct period. similarly, they also have certain audit assertions about the balance sheet and disclosure.We are going to cover each of them.
The five audit assertions are:
Occurrence
Completeness
Accuracy
Classification &
Cutoff
These are audit assertions related to profit and loss statement.
The audit assertions for expenses are:
Completeness
Accuracy
Classification
Occurrence &
Cutoff
As expenses relate to the profit and loss statement, so audit assertions for expenses are the same as profit and loss statement assertions.
Audit Assertions for Revenue are:
Classification
Cutoff
Occurrence
Completeness
Accuracy
Did you notice? I just rearranged the sequence of these five audit assertions. Revenues, as well as expenses, relate to profit and loss statement, so they both have the same 5 audit assertions as a profit and loss statement.